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Monday, November 2, 2015

New Budget Law Changes to Medicare and Social Security

The recently passed “Bipartisan
Budget Act of 2015” raises the debt ceiling and avoids a costly government
default until 2017. It also includes several provisions that will impact Medicare and Social Security. This article addresses those impacts.

Medicare Part B Premiums and Deductibles Adjusted

The Budget Act reduces a huge increase in Medicare Part B premiums
and deductibles that would have hit 30% of Medicare beneficiaries on January 1.
This diverse group includes people who do not collect Social Security, or who will
be enrolling in Medicare’s Part B for the first time in 2016, or have higher
incomes, or are poor enough that they also qualify for Medicaid.

The unlucky 30% were facing an increase of more than 50
percent in their standard monthly Part B premiums. And all Medicare beneficiaries
were going to see their annual Part B deductible go from $147 to $223.

Instead, the Budget Act will raise premiums about 15% for the
unlucky 30% who are not held harmless. This puts their base premium at $120 a
month, although higher income individuals will pay much more. The other 70% of
Medicare recipients will see no premium increase.

The annual Part B deductible will increase to about $167 for
all Medicare beneficiaries (rather than $223).

So there will still be cost increases for Medicare
beneficiaries in 2016, but they will be much smaller than would have occurred
without the new Budget law.

Social Security Disability Cuts Averted

The Social Security Disability
trust fund was going to run so low on money by the last quarter of 2016 that disability
benefits would have been automatically cut by an estimated 19 percent. The cuts would have hit nearly nine million disabled
workers and over 1.7 million children who receive Social Security
disability benefits.

The Budget Act provides temporary relief.
The new law props up the Disability trust fund by shifting $124 billon in
payroll taxes to it from the separate trust fund that covers benefits for
retired workers. This should give the disability fund enough additional
financial support to allow it to continue paying full disability benefits until
2022.

Social Security “Loopholes” Closed

The new law will end two
techniques that married couples use to maximize their Social Security benefits:
(1) file-and-suspend and (2) filing for a restricted claim of spousal benefits.
(In general, widows and widowers are not affected by these changes).

These claiming techniques have made
it possible for many couples to obtain spousal benefits while continuing to
accrue delayed retirement credits.

File and Suspend

Your spouse
cannot claim a spousal benefit based on your work record unless you have already
applied for your own benefit. But current Social Security rules permit workers
who reach their full retirement age to apply for and then put off (suspend) receiving
their benefit payment for up to 4 years (until age 70). By filing you allow
your spouse to receive his or her spousal benefits based on your earning record.
By suspending, you get to increase your own eventual payouts at the rate of 8%
a year by earning delayed
retirement credits.

Basically, the strategy allows married couples the
opportunity to gain up to 4 years of spousal benefits. This can amount to many
tens of thousands of dollars. And the eventual increased entitlement that
results from earning delayed retirement credits can help with longevity risk and
provide additional financial security for a surviving spouse.

The file and suspend technique is eliminated by the new
Budget law. Under Section
831(b) of the Act the worker will have to actually be receiving payments for
spousal benefits to be available. A worker will still be able to suspend to
claim delayed retirement credits, but spousal benefits will not be paid during
the suspension period.

The elimination of file and suspend
will take effect 180
days after enactment (the date the law is signed by the President). [Update: the President signed the Budget Act into law on November 2, 2015. 180 days from then is April 30, 2016.]People whose
requests for benefit suspension were submitted prior to that time will not be affected.
See Section
831(b)(3) of the Act. This means that workers who become 66 within the
first 180 after the enactment date should still be able to file and suspend
their Social Security benefits during that time and thereby trigger benefits
for their spouse. The rules change for workers applying thereafter.

Filing for a Restricted Claim of Spousal Benefits

People are often eligible to earn
Social Security benefits through more than one pathway. Many married workers are
eligible to receive a retirement benefit based on their own work record, and a
spousal benefit based on the work record of their spouse.

Until now, a worker reaching
full retirement age could file a “restricted application” requesting only their
spousal benefit. This allowed the worker to receive Social Security
payments while continuing to earn delayed credits on their own record. At 70
they could switch to enhanced payments based on their own record.

The Act does away with this
strategy by presuming that a worker’s application for spousal benefits is also an
application for benefits on the worker’s own record. You can get the higher benefit,
but not both. You are limited to one bite of the apple.

The elimination of the restricted
claim claiming strategy applies to anyone who attains age 62 after the 2015
calendar year. See Section
831(a)(3) of the Act.

The Budget law also increases the
penalties for Social Security fraud.

Unfortunately, the bill doesn’t really address the long term
funding problems faced by the Medicare and Social Security programs. The current
toxic atmosphere in Washington does not bode well for finding longer term
solutions.

Once the bill is signed into law by President Obama, Congressional
Appropriations Committees will begin work on an omnibus bill that will
determine how the budgeted funds will be spent.

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I am a Pennsylvania lawyer with over 35 years experience in estate planning and elder law. I was selected by US News Best Lawyers® as its Lawyer of the Year in Elder Law for 2014 for the Harrisburg, Pennsylvania metropolitan region.
I am of counsel to Marshall, Parker and Weber, a law firm which has offices in Williamsport, Jersey Shore, Wilkes-Barre and Scranton, Pennsylvania. I am past President and a founder of PAELA (the Pennsylvania Association of Elder Law Attorneys). However, the views expressed on this site are my own and not those of PAELA or of Marshall, Parker and Weber.
Most importantly I am a husband, father and grandfather.